BOJ Trims Bond Purchase Program

Here's the current news from global financial markets.

The Bank of Japan (BOJ) has trimmed the volume of its government bond purchases, triggering speculation that the Japanese central bank may wind back its monetary stimulus this year.

The Governor of BOJ, Haruhiko Kuroda has repeatedly dismissed the chance of withdrawing stimulus any time soon. Even though some policymakers have recently expressed their concerns over the perceived demerits of monetary easing, especially, the hit on financial institutions' profit margins.

This has led to speculation. The central bank may consider raising its yield targets or slow purchases of risky assets later in 2018. And in doing so, Japan will be aligned to a host of developed nations with tighter policy, partly thanks to a synchronized uptick in global growth.

The minutes of the central bank's last policy meeting released late in December showed that a majority of Japan's policymakers agreed that the central bank must persistently purse powerful monetary easing. But, additional stimulus measures were unnecessary for now.

The BOJ kept its policy steady as preferred by most of its policymakers at the two-day meeting that ended on 31 October 2017.

A majority of the members were of the view that extreme monetary easing to achieve a price goal could prevent monetary accommodation from producing its intended policy effects. So taking additional monetary easing now would have more demerits than merits.

The minutes also noted that the effects and costs of buying risky assets, like exchange traded funds (ETFs), must be looked at from every angle; even if the move hasn't yet distorted market functions at this point.

The BOJ is lagging behind the US Fed and ECB in exiting the ultra-easy policy. But sooner or later, Japan will have to withdraw the easy money policy.

In news from global cryptocurrencies. Bitcoin prices have been in a freefall and fallen by over 12% in the last week. While bitcoin prices are indeed volatile, this development comes after news reports suggesting that the South Korean government is intensifying its moves against the country's bitcoin exchanges.

Two of South Korea's biggest cryptocurrency exchanges Bithumb and Coinone were raided by the country's police and tax office officials. The South Korean news reported that the country's Justice Department is moving to prepare the legislation that would pave the way for exchanges in the country to be shut down entirely.

The news represents a significant expansion in the growing scrutiny applied to the crypto-exchange space by South Korean regulators. Earlier this week, the Korean Financial Intelligence Unit and the Financial Supervisory Service announced that they were inspecting six unnamed banks for non-compliance with anti-money laundering and know-your-customer regulations.

Following the news, the bitcoin price dropped from over US$ 15,000 a week ago, to US$ 13,000 this week. This underlines the volatility in bitcoin and other cryptocurrencies.

Bitcoin and cryptocurrencies are a curious bunch. They have no central bank backing and have not yet been regulated. Yet these seem to have found favour among a large number of people, with demand growing every day. There are over 1000 cryptocurrencies in existence today, with new ones being added to the list every day.

While the world of digital currencies is intriguing, it can get very confusing for the layman.

However, the good news is that help is at hand.

Prasheel Vartak and his guru Tama Churchouse, who have been researching cryptos for years, are on a mission to educate Indian investors about this enigmatic investment. You can join them here.

Global indices ended the week on a mixed note. Here are the highlights:

European stocks traded on a mixed note:

  • Germany (DAX) ended with a loss of 0.92%.
  • France (CAC) ended with a gain of 0.54%.
  • The London market (FTSE) was up 1.07%.

The Asian markets too ended the week on a mixed note:

  • The Nikkei Index was down 0.26%,
  • The Hang Seng index surged 1.66%, and
  • The Shanghai index was down by 0.57%.
  • US markets witnessed buying interest and ended their session with a gain of 1.45%.

Indian Indices Log Around 1% Gains

Back home, the Indian indices ended their weekly session on a positive note. The BSE Sensex was up 1.28% for the week, while the NSE Nifty was up 1.15%.

Realty (+5.51%), IT (+4.50%), Energy (+2.55%) were the biggest gainers for the week. Telecom (-3.45%), and Power (-0.84%) were the biggest losers for the week.

Moving on to news from the economy. Attributing the continuing slowdown to the after-effects of the demonetisation exercise, the Goods and Services Tax (GST) implementation and weakness in agriculture, rating agency, CRISIL in its latest report has maintained its projection of India's economic growth in 2018-19 to 7.6% on the low base.

The CRISIL note comes days after the Central Statistics Office (CSO) published its First Advance Estimates of National Income, 2017-18, which stated that the Indian economy is expected to grow at a four-year low of 6.5% in the current fiscal year 2017-18, as against 7.1% in the fiscal year 2016-17.

Growth will continue to be consumption-led as inflation will be under control and interest rates are expected to be soft in FY19 as well. The increase in the salaries of government employees' with the implementation of the Seventh Pay panel recommendations would help. It added that the government's focus on spending towards agriculture and rural themes would be beneficial.

According to the report, the government's ambitious Rs 2.11 trillion recapitalisation plan over two years will ensure that the state-run banks are well positioned to support the growth.

In news from macroeconomic space, the World Bank has pegged India to regain the 'fastest growing major economy' tag in 2018.

After losing the top spot to China in 2017, India is set to bounce back to being the fastest growing major economy, with the World Bank estimating GDP growth at 7.3% in 2018 and to 7.5% over the next two years.

India, despite initial setbacks from demonetisation and Goods and Services Tax (GST), is estimated to have grown at 6.7% in 2017, according to the 2018 Global Economics Prospect released by the World Bank.

According to the report, India's future looks good on several fronts. Moreover, the recent recapitalization package for public sector banks announced by the government is expected to help resolve the abysmal state of their balance sheets, thereby spurring private investment.

The report added that, on the productivity side, India has enormous potential with respect to secondary education completion rate. All in all, improved labor market reforms, education and health reforms, as well as relaxing investment bottleneck will improve India's prospects.

From other per an article in leading financial daily, foreign investors poured in a staggering Rs 1.5 trillion in the Indian debt markets in 2017 on the back of higher bond yields and stable currency, after pulling out massive funds in the preceding year.

The overall net inflow has made 2017 as the best period for debt markets in terms of overseas investment since 2014.

One shall note that, foreign flows in debt markets had started the year on a negative note and pulled out money in January. However, they infused money in February and their bullish stance continued uninterrupted till December.

Going ahead, whether 2018 investments by FPIs will have the same momentum or not is the key aspect to watch out for, with the withdrawal of liquidity and rate hikes in developed economies expected to pick up.

Nifty 50 Index Ends at Life-time High
Nifty 50 Index Ends at Life-time High

The Nifty 50 Index traded on a positive note during the week. On Monday, it opened the session 58 points gap up at a new life-time high and continued to trade higher. It then traded in a narrow range for the next three sessions. Finally, on Friday, the Nifty index opened 32 points gap up and continued the positive momentum to end its weekly session 1.15% up.

Last week, we saw the index finding support from 10,500 level. The level which acted as a strong resistance on the way up will now act as a strong support for the index as per the change of polarity principle.

The index is currently trading in the uncharted territory. How long it maintains the bullish momentum will be an interesting to track in the next few weeks.


Gold Witnesses Buying Interest

Gold traded on a positive note during the week. On Monday, it opened the session lower, but recovered immediately to close the session on a positive. It witnessed some profit booking in the next trading session. But the selling pressure was temporary, as gold recovered its position toward the end of the week. Gold prices nudged higher because of a steady trend overseas and buying by jewelers at the domestic spot market. Finally, on Friday, gold continued to trade positive and ended its weekly session with 1.13% gains.

Gold Trades in an Uptrend

Crude Oil Hits 3-Year High

Crude oil witnesses buying interest during the week. On Monday, it opened the session higher and continued to trade in an uptrend throughout the week. Oil prices held at close to three-year highs, supported by a surprise drop in US production and lower inventories on crude oil. Second, the gains were due to ongoing production cuts led by OPEC as well as healthy demand. The black gold witnessed minor profit booking on Friday and ended its weekly session with 4.58% gains.

Crude Oil Surged 5% for the Week


Dollar Trades on a Positive Note

The dollar traded on a positive note during the week. On Monday, it opened its weekly session lower, but recovered immediately and traded positive until mid-week. The buying was seen after China's regulator dismissed a report that the country could halt its buying of US Treasuries, boosting the greenback following its biggest one-day fall in a month. The dollar witnessed profit booking towards the end of the week. Finally, on Friday, the currency witnessed some more selling but ended the weekly session with gains of 0.34%.

Dollar Ends in the Green

Commodities 05th Jan 12th Jan % Change
Gold/10 gms 29,217 29,547 1.13%
Silver/kg 39,253 39,063 -0.48%
Crude Oil/barrel 3,887 4,065 4.58%
Natural Gas/mmBtu 177.10 204.00 15.19%
Currencies 05th Jan 12th Jan % Change
USD / INR 63.51 63.73 0.34%
EUR / INR 76.65 77.31 0.86%
GBP / INR 86.07 86.84 0.89%
JPY / INR 56.17 57.40 2.20%

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